The life sciences industry asserted itself in a big way in Silicon Valley and the Bay Area last year, exhibiting an increasingly healthy appetite for large campuses from Santa Clara and San Jose to San Francisco.

In the past year, five of six major campus leases identified by NAI BT Commercial real estate were to major U.S. life sciences firms such as Boston Scientific, Abbott Laboratories and Amgen. The largest of all was a nearly 450,000 square foot lease to PDL BioPharma in Redwood City, which ultimately played into the sale of the property for some $800 million only months later.

In total, BT counts about 1.4 million square feet of campus leasing by life sciences companies in 2006.

The trend is likely to continue as the industry matures and as the Bay Area's reputation as a hub is enhanced, brokers specializing in the sector say.

"I think it's pretty significant that a couple of the larger deals in the Bay Area last year were done by life sciences companies," says Gregg Domanico, managing partner of BT's life sciences group. "Is life sciences going to change the Silicon Valley market overnight? No. But over time, it's going to exert a stronger and stronger influence."

Moreover, he and others argue, property owners can play a pronounced role in deciding whether and how much the industry expands here. Because so many of these companies remain unprofitable and their real estate needs are so expensive, they gravitate to properties where landlords are willing to finance the cost to build laboratories and other necessities up front. The companies then re-pay the "loans" as part of their monthly lease payments.

The cost to build the kind of research and development space that these companies need is in the range of $300 a square foot, three to six times above what it costs to improve traditional office space.

The opportunities for Silicon Valley and the rest of the Bay Area will only expand as available land for redevelopment shrinks in South San Francisco, the undisputed epicenter of the Bay Area's biotech industry, Domanico adds.

San Diego's BioMed Realty Trust, a major player in providing real estate to life sciences companies, has already boarded the band wagon. The company acquired the former Sun Microsystems Inc. campus at the foot of the Dumbarton Bridge in Newark this year, paying $214 million. The campus, with 1.4 million square feet, is being promoted as a life-sciences location, though BioMed has said it would lease to companies outside the industry as well.

Meanwhile, perhaps the greatest referendum on the future of the California life sciences industry is under way, though almost completely behind the scenes. Slough Estates International, a U.K.-based company, announced late last year that it intended to push forward with a previously disclosed plan to test interest in its California holdings, all of them life-sciences oriented.

That 4.7 million square-foot portfolio includes about 3.6 million square-feet in the region with 1.3 million square feet in Mountain View and Redwood City alone, according to a property summary on the Slough Web site posted in mid-2006. Slough bought the latter two properties in 2005 from Chicago's Equity Office Properties Trust. Valley observers saw the acquisition as significant in that it indicated a substantial stretch into the South Bay from the industry's traditional peninsula focus.

While an outright sale is one possibility, Slough executives have said that they are looking at a range of options, including sale of the entire division to one buyer, a phased divestiture, presumably to several buyers, and a joint venture or merger with a third party.

"We've had lots of people approaching us over the last two years since we made it clear that we would be exiting the U.S. at some point," Chief Executive Officer Ian Coull told analysts in a call Nov. 16. "We are very sure that this is a very attractive business proposition, and we are very confident that there will be plenty of interested parties."

The company has retained advisors, he said, though he did not say who.

Slough executives say they intend to focus their business in Europe and the U.K., where the company owns real estate that is less industry specific.

Neither BioMed nor Alexandria Real Estate Equities Inc., another life-sciences landlord based in Pasadena with Bay Area holdings, returned calls for comment on the Slough portfolio. Both are considered potential buyers, as are any number of others including cash-rich private equity firms with an interest in jumping feet first into the life-sciences world.

Local brokers, including those who specialize in life sciences leasing and investment, say little information is leaking out about how Slough's exploration of its options are going. Several speculated that the ultimate deal could involve billions of dollars and be the largest commercial real estate transaction in the Bay Area this year.

Slough's Bay Area portfolio is high-quality, well-located and well-leased, says Randy Scott, a partner with Cornish & Carey Commercial brokerage who specializes in representing life-sciences companies in lease negotiations. He has done business with Slough in the region, Scott says, but has no business ties to them.

The outcome of the Slough deal, from the terms of any sale or merger to the identity of any buyer or merger partner, will say a lot about the confidence in the future of Bay Area's life sciences industry, he says.

"When you buy, you ask yourself, 'What is the risk?'" Scott says. "The risk is basically that if a building falls empty, is the market strong enough and are there enough prospective tenants" to re-fill the space.

A sale also could introduce some new uncertainties for tenants, however, Domanico says. Slough is a known entity in the industry; the buyer may not be. Beyond that, a new owner might raise rents to try to beef up its investment returns.

That pattern is already emerging at other properties that have sold in the commercial real estate sales boom that has gripped the valley in the past two years, he says.

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SHARON SIMONSON covers real estate for the Business Journal. Reach her at (408) 299-1853.